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Housing prices: 'The market realities are very different today' compared to 5-10 years ago: Analyst

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George Ratiu, Realtor.com Manager of Economic Research, joins Yahoo Finance Live to discuss Fannie and Freddie news on home loans and the overall housing market.

Video transcript

JARED BLIKRE: Welcome back. Thinking of buying a million dollar home? Well, you can now flip the mortgage to Fannie and Freddie. And that's thanks to them upping their limits on the maximum mortgage size that they will underwrite. And we want to bring in George Ratiu, realtor.com manager of economic research. George, thanks for joining us today. This is almost-- this is, well, it's almost a million dollars. But my point is, this is a big number. As we were talking during the break, I last visited this about 10 years ago. And it seemed to be maybe half. I'm not sure. But tell us the specifics of this and what this will enable buyers of homes to do.

GEORGE RATIU: Absolutely, Jared. And the truth is, you're right. What these numbers show is that the market realities are very different today than they were 5 or 10 years ago. The Federal Housing Finance agency updates these numbers every year. And what they did, this number, is increased those limits by about 18% for most of the country. So they move to about 625,000. But to your point, in high cost expensive markets, they moved a little over $970,000. What this is, it's an acknowledgment that real estate markets have seen an unprecedented period during this pandemic, when so many dynamics were accelerated for buyers.

What this means is that basically, they'll be able to use these higher limits to qualify for a conforming loan. Then those loans come with some benefit. They can-- generally, lenders will allow lower down payments, so not necessarily 20%. You can do lower than that, 10%, let's say, with the average being generally about 8% to 10%. You also don't need as high a credit score. So there are a host of benefits to conforming loans, which really help buyers. And the reality is, for many buyers in expensive markets-- think New York, San Francisco, Washington, DC, Boston-- a million dollars will get you really nowadays a nice family-sized home, but not necessarily the luxury we might have thought about 10 years ago.

ZACK GUZMAN: Yeah, and the other thing, too, here to think about, I suppose, is flashback to the housing crisis about a-- well, now more than a decade ago. And you think about maybe how big is too big, right? Because, obviously, it's good to make it easier and cheaper for a lot of people to get into homes even in more expensive markets. But then it's the question of, is it too easy to do so if you're making it easier? And so how do you look at that maybe around maybe trying to prevent some of the issues that led up to the last crisis?

GEORGE RATIU: Great question. And here, the reality is that after the last crisis, we saw a lot of legislative and regulatory actions which were aimed at ensuring more discipline in underwriting. Obviously, as you pointed out, the last housing bust, the Great Recession, came as a result of loose underwriting. That's no longer the case. Banks are requiring documentation of income. They're requiring solid credit scores. And in fact, as of last year, credit scores reached a new high. They were across the country over 700, the FICO score. They're requiring much more significant down payments.

And so, with this in mind, we've seen loan performance be very solid, not only during this last decade, but even during this pandemic. So my view on this is that, obviously, we want to be mindful not to encourage excessive lending to people that are not qualified. At the same time, the market reality is such that the prices we saw this year are record highs. So the FHFA is simply recognizing the market dynamics that we're working under.

JARED BLIKRE: Wait a minute. Let's talk about those record prices because we just got the latest Case-Shiller data the other day, and prices are up 20% year over year, ticking down from a couple of months ago, but that is still very, very high. How is that affecting demand in the market now?

GEORGE RATIU: We are seeing, to your point, these record prices beginning to tamp down some of the demand, but they are not the only factor. In fact, at realtor.com, we've been tracking prices on a weekly basis much more frequently since the pandemic started, based on the weekly data. We've seen prices enter single digit territory in terms of growth this fall from the overheated period we saw during the first half of the year.

And here, I think that for many buyers, what this translates into is a slower, slightly slower pace of transactions. At the same time, with more homeowners bringing homes to market, we're actually seeing more options for buyers. But I think the challenges will remain. As we look towards 2022, for many first-time buyers, A, mortgage rates are beginning to rise. We are seeing them now solidly above 3%. B, home prices are likely to continue rising, simply because there's not enough new home supply.

ZACK GUZMAN: Yeah, it's been interesting to watch a lot of all of these moves. In whatever housing market you're in right now, it's been the constant story here in 2021 that it has been pretty impressive to see housing prices rise across the country. But George Ratiu, realtor.com manager of economic research, appreciate you coming on here to chat with us today.

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